11-crc #11 outsourcing · customer call centres procurement innovation, r & d sales &...
TRANSCRIPT
TITLE• Presentation Points
– Additional Points
– Additional Points
Brian WilkinsonVice PresidentBusiness Process OutsourcingLOGiQ3 Corp.
Jennifer ToalExecutive Vice President, General Manager - Canada DRIAS International Ltd.
John Y. ChangNational LeaderGlobal Sourcing AdvisoryPricewaterhouse Coopers
Outsourcing Industry Trends• Supply side consolidation:
– HP/EDS, Tech Mahindra/Satyam, iGate/Patni
– Indian vendors cannot meet growth projections organically
– Excess capacity
• Reality of globalization: Multinationals and global delivery model.
• Off shoring will continue to grow, with many new locations operating as an alternative to India
• The range of business functions and services under consideration for sourcing will expand…beyond ITO, BPO, FAO and HRO, to engineering & design, legal & tax services, R&D, product development, and research
• Commoditization of services continues as more and more services mature: ITO, BPO, KPO
– Standardization: CMMI, ITIL, IFRS
Outsourcing Industry Trends• Outsourcing is here to stay… and will expand in various forms across all
industries worldwide. Global sourcing business case is well established, focus will be on execution, managing risk, and speed of benefits realization
• Deals will get smaller, with more options available to buyers and more service demanded of providers
• Engagement cycles (‘doing the deal’) will shorten as buyers become increasingly savvy and more sophisticated in their understanding of capability within the provider community
• Multiple sourcing arrangements and increased complexity will increase business risk and drive the need for sound performance management and benefits tracking. COE for Sourcing management will be created internally.
• Organizations will be saddled with second-wave outsourcing requirements as $250billion in expiring contracts come up for renegotiation or termination over the next two years.
Direct Insurance Market• Successful companies are aligning with partners
to provide a broader range services beyond traditional TPA services:– Product development
– Specialized Training
– Add-ons for revenue enhancement
– Retention
– Marketing
• Central admin model relies on maximizing customer opportunity
Direct Insurance Market• Speed to market and ability to scale
• Nimbleness in adjusting to market and client needs
• Continuously strive for operational efficiencies
• Increasing focus on brand value and desired customer experience
• More domestic outsourcing with strict attention to security and less off-shoring
Reinsurance Market• Ceding Companies and Reinsurers are
considering outsourced solutions beyond just Administration– IT (Application Development)
– Underwriting
– Claims
– Data Mapping
Reinsurance Market• Maturing market
• Companies are looking beyond simple expense drivers to outsource– Access to expertise and capabilities
– Achieve economies of scale
– Leveraging trusted strategic partnerships
PWC Global Sourcing Survey
PricewaterhouseCoopers LLPPage 10
Q2a Which products or services does your company currently source from external suppliers?
IT services, core products/services and logistics and distribution are the top three outsourced services
10
24
25
30
32
33
35
51
53
57
0 20 40 60 80 100
Other
Finance & Accounting
Customer Call Centres
Procurement
Innovation, R & D
Sales & Marketing
HR Services
Logistics & Distribution
Production/Delivery of Core Products/Services
IT Services
Base: All respondents (226)
Back office services (86%)Front office services (70%)
Facilities, Maintenance & Cleaning (4.0%)Project Management (1.3%)Security (0.9%)Insurance (0.4%)Legal (0.4%)Recruitment (0.4%)Operations Processing (0.4%)
Client
PricewaterhouseCoopers LLPPage 11
Q5(a) Which of these issues do you consider to be the biggest barrier to outsourcing?)
Vendors cited these, along with employee opposition
6
6
4
3
4
3
18
20
11
17
8
3
6
3
4
8
9
9
11
12
16
19
0 10 20 30 40 50
Don't know/Refused/Missing
None
Ethics of moving jobs offshore
Concerns about public reaction
Other priorities seen as more important
Need to clean up operations before outsourcing
Employee opposition
Lack of skills to manage outsourcing
Company values favour using in-house staff
Lack of experience
Poor cost-benefit
%
Client
Vendor
Clients cited poor cost-benefit and lack of experience are the two biggest barriers overall
Base: All respondents –Client (226) Vendor (66)
PricewaterhouseCoopers LLPPage 12
Q7 Would you outsource any activity again?
The majority of users are prepared to outsource again, based on their previous experience
91
5 4
Yes No Don't know/Refused/Missing
Base: All respondents (226)
Client
* No vendor equivalent
PricewaterhouseCoopers LLPPage 13
Q8 What are the main reasons why outsourcing projects have been less than satisfactory?
4
8
23
24
30
30
31
38
48
14
29
14
42
58
32
33
21
0 20 40 60 80 100
Don't know/Refused
None
Cultural differences or issues
Wrong choices about what tooutsource
Your ability to manage theproject
Poor collaboration
Expected benefits were notachievable
Poorly defined contracts
Vendor skills and capabilities
%
Client Vendor
Base: All respondents - Client (226) Vendor (66)
Clients believe vendor skills are the main reason why projects fail, followed by contract definition
Vendors believe that poor collaboration is the main reason why outsourcing has been unsatisfactory
PricewaterhouseCoopers LLPPage 14
Q9a Which one of the following pairs worked best in real life outsourcing?
5143
6
Detailed, highy specific contractsFlexible business termsDon't know/Refused/Missing
Base: All respondents – Client (226) Vendor (66)
Client
36
58
6
Detailed, highy specific contractsFlexible business termsDon't know/Refused/Missing
While half of users prefer detailed, highly specific contract terms, the other half favour flexible terms
Overall, vendors tend to favour flexible business terms over detailed, highly specific contracts, however these still have a role
Vendor
PricewaterhouseCoopers LLPPage 15
Q9d Which one of the following pairs worked best in real life outsourcing?
66
20
14
Outsourcing nearbyOffshore outsourcingDon't know/Refused/Missing
Base: All respondents (226)
Client
There is still a preference amongst users for near-shoring versus offshoring
Vendors are also more likely than users to consider offshoring as a solution
24
52
24
Outsourcing nearbyOffshore outsourcingDon't know/Refused/Missing
Vendor
PricewaterhouseCoopers LLPPage 16
Q9e Which one of the following pairs worked best in real life outsourcing?
46
49
5
Traditional commercial termsShared risk and rewardDon't know/Refused/Missing
Base: All respondents – Client (226) Vendor (66)
Client
Clients’ opinions on traditional versus shared risk/reward contract terms are divided
Vendor
Vendors also favour shared risk/reward relationships over more traditional commercial terms
33
58
9
Traditional commercial termsShared risk and rewardDon't know/Refused/Missing
PricewaterhouseCoopers LLPPage 17
Q10 What is a reasonable after-tax margin for a supplier in an outsourcing arrangement?
11
11
9
5
1
17
1
3
17
6
15
4
0 10 20 30
Refused
Don't know
More than 20%
19-20%
17-18%
15-16%
13-14%
11-12%
9-10%
7-8%
5-6%
Less than 5%
%
Base: All respondents – Client (226) Vendor (66)
Client
622
48
28
223
122
32
915
0 10 20 30
Refused
50%
45%
40%
30%
27%
25%
23%
20%
15%
14%
12%
11%
10%
0%
%
Vendor
Two in five of users consider 10% or less to be an appropriate after tax margin for suppliers
Almost two thirds of vendors consider that a reasonable after tax margin is 15% and more
PricewaterhouseCoopers LLPPage 18
39
61
Yes - have provided details of margins
No - have never provided details of margins
Q11a Have you ever had sight of vendor margins when negotiating an outsourcing agreement?
46
50
4
Yes - have seen marginsNo - never seen marginsDon't know/Refused/Missing
Base: All respondents - Clients (226)
Client
Only half of users have had sight of vendor margins during contract negotiation
Have you ever provided details of your margins when negotiating an outsourcing agreement?
Two in five of vendors have provided details of their margins to clients
Vendor
PricewaterhouseCoopers LLPPage 19
Q13 How important are each of these for using outside suppliers to perform work?
Cost savings and access to talent are still the two greatest drivers for outsourcing
-18
-17
-16
-13
-4
-4
-4
-1
-20
-19
-20
-20
-8
-7
-7
-6
23
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30
22
16
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18
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30
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38
34
18
12
15
21
39
21
24
42
2
2
1
3
3
3
3
1
-40 -20 0 20 40 60 80 100
Geographical expansion
Helps us develop new productsand services
Market segment expansion
Improving customer relationships
Access to talent
Increased business modelflexibility
You can farm out activities thatothers can do better
Lower costs
%
not at all important not very important somewhat important
quite important very important don't know / refused
Base: All respondents (226)
Client
PricewaterhouseCoopers LLPPage 20
Q14 How significant an impact will social or environmental issues have on outsourcing decisions?
2
28
38
24
8
11
38
42
9
0 20 40 60 80 100
Don'tknow/Refused/Missing
Very significant
Quite significant
Not very significant
Not at all significant
%
VendorClient
Base: All respondents – Clients (226) Vendors (66)
Two thirds of users consider that social/environmental issues will have an impact on outsourcing decisions
Vendors consider that social and environmental issues will not have a major impact on outsourcing decisions
PricewaterhouseCoopers LLPPage 21
Q15 Which of these do you expect to have greatest impact on your (client’s) future outsourcing decisions?
7
14
25
34
45
47
61
3
9
39
18
32
52
65
0 20 40 60 80 100
Don't know/Refused
None
Negative impact onoffshore localcommunities
Environmental impact ofoffshore facilities
Bribery and relatedbusiness ethics inoffshore locations
Domestic ethical issuesaround moving jobs
offshore
Labour and employmentstandards in offshore
locations
%
VendorClient
Base: All respondents – Client (226) Vendor (66)
Labour and employment standards in offshore locations is believed to have the biggest impact on decisions
Like clients, vendors believe that labour and employment standards will have the greatest impact on outsourcing
PricewaterhouseCoopers LLPPage 22
Q16a In the past, how have you made location decisions for outsourcing?
19
17
14
58
9
12
13
48
20
10
26
54
0 20 40 60
You mainly relied onvendors to makethese decisions
You made themjointly with your
selected vendors
You made theminternally based onyour analysis of the
market
%Don't know/Refused Rank 3 Rank 2 Rank 1
Base: All respondents – Client (226) Vendor (66)
Client
9
11
3
62
4
23
12
41
36
17
44
38
0 20 40 60 80
They mainly rely onvendors to make these
decisions
They make them jointlywith their selected
vendors
They make theminternally based on ananalysis of the market
%
Outsourcing decisions were traditionally based on user’s analysis of the market
How do you think clients make location decisions for outsourcing?
Vendors believe that clients mainly make location decisions jointly with selected vendors
Vendor
PricewaterhouseCoopers LLPPage 23
Q19 Regarding product and service innovation, to what extent is your organization expanding your use of each of these?
Customer feedback/consultation appears to be growing
58
64
35
30
27
30
20
13
16
13
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14
18
13
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26
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4
12
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15
14
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27
1
2
4
6
7
10
12
20
3
4
2
2
13
4
3
3
0 20 40 60 80 100
Buying third party patents
Selling your patents to others
Innovating together with competitors
Open, public, collaborative innovation initiatives
Online customer communities and social networks
External sources for innovation, research anddevelopment
Global, as opposed to domestic, sources of innovation
Customer feedback/consultation for product and serviceideas
%
not at all a little more than a little quite a lot a great deal don't know/ refused
Base: All respondents (226)
Client
PricewaterhouseCoopers LLPPage 24
Q21 How would you rate your company’s experience of dealing with outsourcing services suppliers on each of the following statements?
Users generally believe that relationships are built on trust and decisions are made jointly
-24
-21
-18
-16
-11
-8
-7
-9
-12
-5
39
36
33
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27
23
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24
28
42
41
5
8
11
12
14
20
2
2
2
4
3
2
-1
-2
-40 -20 0 20 40 60 80 100
Suppliers are proactively innovative
Risks and rewards are shared
Competing suppliers work welltogether to meet your demands
Joint governance structures workeffectively
Matters of mutual interest aredecided jointly
Business dealings are honest andtransparent
%
rarely true never true sometimes true
often true always true don't know / refused
Base: All respondents (226)
Client
PricewaterhouseCoopers LLPPage 25
Q29 What, in your opinion, are the main reasons to use open, collaborative sourcing approaches
1
2
7
11
15
24
37
46
66
68
4
20
15
24
50
44
71
56
0 20 40 60 80 100
Don't know/Refused
None of the above
To meet employee expectations
To coordinate multiple suppliers
To find and motivate talent
Collaboration makes things easier
Better innovation
To meet customer expectations
Better quality results
To reduce costs
%
Client Vendor
Base: All respondents – Clients (226) Vendors (66)
Cost reduction is still a key consideration for outsourcers and could drive collaborative models
Vendors consider the main advantages of these models to be quality and innovation, coupled with cost savings
PricewaterhouseCoopers LLPPage 26
9
3
24
9
17
212
2
4
17
21
8
2
2
24
6
44
2
0 20 40 60 80 100
Don't know/Refused
Nothing
Focus on technology
Specialise/create a niche
Focus on process improvement
Don't use as it's hard to obtain info/stats
Increased innovation
Tailormade solutions
Grow geographically
Should be done in-house or via outsourced
Greater flexibility
Improve quality assurance
Broaden service offering
Improve/increase marketing
Business strategies change
Be more cost competitive
Build stronger relationships with clients
Better understanding
Stronger contractual arrangements from the start
More detailed research/better advice beforehand
Better planning/better communication
%
Q32 Is there anything that you would do differently the next time you outsource provision of any products or services?
11
820
1122224445
101214
1525
0 20 40 60 80 100
Don't know/RefusedNothing
Don't use as it's hard to obtain info/statsIncreased innovationTailormade solutionsGrow geographically
Should it be done in-house or via out-sourcedGreater flexibility
Improve quality assuranceBroaden service offering
Better communicationImprove marketing
Business strategies changeBe more cost competitive
Build stronger relationships with clientsBetter understanding
Stronger contractual arrangements from the startMore detailed research/better advice beforehand
Better planning
%Base: All respondents - Clients(226) Vendors (66)
Client
Planning is considered to be key aspect of ensuring outsourcing is a success
What does your company plan to do differently as its outsourcing services evolve in the future?
Vendors are focusing on building relationships with clients going forward, along with broadening their service
Vendor
PricewaterhouseCoopers LLPPage 27
3
4
4
4
5
5
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7
8
10
10
24
12
3
9
8
4
15
2
9
11
6
20
0 20 40 60 80 100
It is becoming more complex to manage
Improved cooperation
More transparent
Providing technological expertise/plugging skills gaps
Innovation
Specialisation
Outsourcers becoming more competitive
Timely/quality delivery/efficiency
It is becoming better understood
It is realising significant cost benefits
New activities/functions
It is becoming more popular
%
Client Vendor
Q33 What do you think is going on at the leading edge of outsourcing?
Base: All respondents – Clients (226) Vendors (66)
A range of opinions were given by Clients, but overall it is believed that outsourcing will continue to gain popularity
Vendors believe outsourcing is continuing to grow and skills are expanding
PricewaterhouseCoopers LLPConfidential
Ten steps to outsourcing success
1. It is heavy lifting at best of times: manage, manage and manage
2. Be a prepared buyer- Informed decision- Confirm why are you doing it- Know what you want- Have understanding of current baseline to measure success against- Stakeholder alignment- Must have ability to execute and ability to manage- Define benefits early and constantly monitor
3. Transformational program not procurement exercise
April 7, 2011Page 28
PricewaterhouseCoopers LLP
Confidential
Ten steps to outsourcing success (cont’d)
4. Executive oversight during start up and ongoing management is critical5. Anticipate and plan for change through the life of the agreement6. Have an exit strategy in place:
• Termination for convenience• Clearly defined transition assistance
7. Life cycle view: Have stay back/governance team involved very early in the cycle
8. Do not underestimate resistance: Change management is critical9. Champions are required10. If there are doubts: Do not do it
April 7, 2011Page 29